Annuitized wealth and consumption at older ages

Annuitized wealth and consumption at older ages

Annuitized wealth and consumption at older ages

Butrica

Barbara A.

Butrica, Barbara A.

Author

Author

Mermin

Gordon B.T.

Mermin, Gordon B.T.

Author

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20062006monographic

Chestnut Hill, Mass.

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2006

2006

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

The growing popularity of Individual Retirement Accounts (IRAs) and defined contribution (DC) pension plans, which generally provide benefits in the form of lump sum payments instead of annuities, is likely to affect spending patterns at older ages. People who enter retirement with little of their wealth annuitized run the risk of spending too quickly and depleting their assets before they die. Or they might spend too slowly, out of fear of running out of money, and not enjoy as comfortable a retirement as they could afford.

This study uses data from the Health and Retirement Study (HRS), including a recent supplemental expenditure survey, to examine how household expenditures among adults ages 65 and older vary by the degree of annuitizationwhere annuities include Social Security benefits, pensions and private annuity contracts, and Supplemental Security Income (SSI) benefits.

Results indicate that typical older married adults hold 55 percent of their retirement wealth in annuitized assets, and unmarried adults have 59 percent of their wealth annuitized. Older adults with little annuitized wealth spend more, even controlling for demographics, income, and wealth. If all defined benefit pensions (DB) were converted into unannuitized DC retirement accounts, discretionary spending could increase by as much as 3 percent for married adults and 11 percent for unmarried adults. By comparison, if Social Security was completely privatized, and retirees did not annuitize, discretionary spending could increase by as much as 22 percent for married adults and 38 percent for unmarried adults.

Barbara A. Butrica and Gordon B.T. Mermin.

CRR WP2006-26

CRR WP2006-26

CRR WP

2006-26

http://crr.bc.edu/images/stories/Working_Papers/wp_2006-26.pdf

MChBEnglisheng

MChB

Englisheng

English

eng